* U.S. stocks rally; bleak jobs data fuels stimulus hopes
* World stocks rise for fourth consecutive day
* U.S. crude slips as jobs data suggests weaker demand (Adds close of U.S. markets; adds byline)
By Gertrude Chavez-Dreyfuss and Herbert Lash
NEW YORK, Feb 6 (Reuters) - Global stocks rose on Friday but the dollar and yen tumbled after a bleak U.S. jobs report boosted expectations Congress will pass an economic stimulus package soon.
Wall Street rallied despite Labor Department data that showed employers cut 598,000 jobs in January, the largest contraction since December 1974. The unemployment rate climbed to 7.6 percent, the highest in 16 years.
Oil prices fell $1 a barrel as the job losses signaled still weaker demand ahead while bond prices fell as a flight-to-safety bid was cut.
Quick approval of a stimulus package would lessen the impact of the U.S. recession and set the stage for a recovery later this year, analysts said. That boosted sentiment in stocks worldwide as global investors looked to the United States to pull the world out of a sharp downturn.
Sentiment was also boosted by anticipation of a U.S. bank bailout plan expected on Monday, sending bank shares sharply higher.
"Sentiment in the financial sector is very, very important and we're all anticipating Monday," said Paul Nolte, director of investments at Hinsdale Associates, in Hinsdale, Illinois.
Nolte also said investors feel that the worst may be over and that within the next couple of months there will be a moderation, or at least a flattening, of the bad numbers.
In the Senate members worked to craft a stimulus package, with moderates trying to trim the $937 billion price tag to attract lawmakers who say it is too costly.
The Dow Jones industrial average rose 217.52 points, or 2.70 percent, to 8,280.59. The Standard & Poor's 500 Index gained 22.75 points, or 2.69 percent, to 868.60. The Nasdaq Composite Index was up 45.47 points, or 2.94 percent, at 1,591.71..
MSCI's all-country world equity index was up 2.6 percent, its fourth gain in as many days and its seventh in the past 10. The index's emerging market counterpart was also up sharply, rising 4.2 percent on the day.
The dollar and the yen tumbled versus the euro. The dollar and the yen have benefited from extreme risk aversion in the market amid persistent worries over increased woes in the banking sector and a deepening global slowdown.
"It's the anticipation of Monday's announcement by (President Barack) Obama and (Treasury Secretary Timothy) Geithner and that the administration will deliver everything the market wants," said Michael Woolfolk, a currency strategist at Bank of New York-Mellon.
The dollar fell against a basket of major currencies, with the U.S. Dollar Index off 0.81 percent at 85.369. Against the yen, the dollar was up 0.97 percent at 92.00.
The euro was up 1.15 percent at $1.293.
The FTSEurofirst 300 index of leading European shares closed 2 percent higher.
U.S. light crude for March delivery settled down $1 at $40.17 a barrel. London Brent, which usually trades below its U.S. counterpart, settled down 25 cents to $46.21.
U.S. crude is trading well below Brent as inventories in Cushing, Oklahoma -- the delivery point for the U.S. crude contract -- are at record levels.
"Crude has tested below $40 on the jobs losses, but the fact that crude has not gone down much deeper is due to the fact that the stock market has held higher," said Tom Knight, trader at Truman Arnold in Texarkana, Texas.
Gold fell slightly in thin, choppy trade after the dire U.S. jobs report boosted expectations that a stimulus package will be passed soon, which would cut gold's safe-haven appeal.
Spot gold prices fell $4.70 to $910.05 an ounce.
U.S. government debt prices also slid, as signs of a rapidly worsening jobs market spurred fears that the government would have to borrow and spend more to aid the economy.
The benchmark 10-year U.S. Treasury note fell 24/32 in price to yield 2.99 percent. The 2-year U.S. Treasury note slid 2/32 in price to yield 1.00 percent. (Additional reporting by Jeremy Gaunt, David Sheppard in London and Ellis Mnyandu, Richard Leong in New York; writing by Herbert Lash; Editing by Kenneth Barry;)